“He wants to move all of his funds to his new university plans. We have no issues with the 403(b) plan, but are having difficulty accommodating his request for the 457(b) plan since rollovers are not permitted from that plan. Is there any other way to accommodate his request?”
Michael A. Webb, vice president, Cammack Retirement Group, answers:
Maybe. Though you are correct that rollovers from private tax-exempt 457(b) plans are not permitted (such rollovers are only allowed in GOVERNMENTAL 457(b) plans), there is a lesser-known method of moving funds from a 457(b) plan, known as a plan-to-plan transfer.
As the name implies, funds may only be transferred from one 457(b) plan to another: movement of assets to a 403(b) or other type of qualified plan, or to an IRA is not permitted under the plan-to-plan transfer rules. Thus, the participant’s new employer must maintain a 457(b) plan. Though it is not an issue in your case, it should be noted that transfers from governmental plans to private tax-exempt plans (or vice versa) are not permitted, the plans in question must both be private tax-exempt, or both governmental, for such a transfer to occur.
In addition Treasury Reg. 1.457(b)-10(b) requires that the plan-to-plan transfer must satisfy the following conditions:
- The transferor plan provides for transfers;
- The receiving plan provides for the receipt of transfers;
- The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and in the case of a transfer for a participant, the participant has had a severance from employment with the transferring employer and is performing services for the entity maintaining the receiving plan;
- The transferred amount is subject to the restrictions as to when distributions are permitted to be made to a participant in the receiving plan in the same manner as if the transferred amount had been originally deferred under the receiving plan if the participant is performing services for the entity maintaining the receiving plan; and
- The transferred amount is subject to the requirements relating to when amounts are considered to be made available under an eligible plan of a tax-exempt entity in the same manner as if the elections made by the participant or beneficiary under the transferor plan had been made under the receiving plan.
If all of these conditions are satisfied, you may indeed honor the request of your participant to move assets from his existing 457(b) plan to the 457(b) plan of his new employer. However, as the last three requirements can be difficult for the receiving 457(b) plan to administer, many tax exempt 457(b) plans will not accept such transfers.
Thank you for your question!
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.